Majority of small holder farmers are missing out on credit to expand their farms as many are stuck in the traditional ways of storing their harvest.
A new study by the Financial Sector Deepening (FSD) and AGRA finds out that 94 per cent of Kenya’s small holder farmers prefer storing produce on their farm, 9 per cent prefer using private warehouses and 6 per cent prefer public warehouses.Access to quality storage facilities remain a challenge to majority of them denying many opportunities to access formal credit through the Warehouse Financing Receipt (WFR) model.The survey underscores need to include an aggregation model into the Warehouse Receipt System to promote small holder farmers participation, sensitisation of the farmers and also need to demonstrate the alternative buyers that the farmers would access by participating in it.
“The annual financing requirements by Small Holder Farmers lie between KSh50,000 to KSh100,000, the primary obstacle hindering them from obtaining loans when required is the lack of sufficient collateral,” notes the study.
“Collaboration between depositors, warehouse operators, financiers and buyers are essential for ensuring not only the efficient storage and management of goods but also the financial stability of all involved stakeholders,” the study says.
The survey underscores need to include an aggregation model into the Warehouse Receipt System to promote small holder farmers participation, sensitisation of the farmers and also need to demonstrate the alternative buyers that the farmers would access by participating in it.
The study proposes bringing together the off-takers, input providers and collateral managers in enabling farmers to profit from Warehouse Receipt Financing system.
Off-takers: They provide market access, quality assurance, price stability and payment guarantee. Their involvement facilitates the financing process for depositors and significantly reduces credit risk for financiers.
Input providers: By collaborating with input providers, farmer cooperatives could have the option to utilize warehouse receipts as collateral to obtain agricultural inputs.
The study further says that when cooperatives operate their own warehouses, they can opt to engage collateral managers as impartial third-party agents.
The study also referred as Warehouse Receipt Financing Feasibility, indicates that there are 7.5 million small holder farmers in Kenya, 94 per cent cultivate farms smaller than 5 acres and have an annual median produce of 1000-3000kgs.
Post-harvest losses, exposure to high price volatility of produce and inadequate access to finance are some of the common challenges faced by the small holder farmers.
The survey included input from stakeholders in six regions growing maize, wheat, sorghum, rice, coffee and pulses.
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